Corporate Innovation: How To Build A Startup Within A Company

how to build a startup Dan Gudema has always fancied himself as more of an entrepreneur than a mid-level executive, but for most of his career he was the latter, working at several large telecom companies. Over the years he tried to push innovation and create startup-like teams within the larger business, but, not surprisingly, some of those efforts were met with resistance.

“Certain people get jealous or they're not happy with you," says Gudema, who's now a Boca Raton-based business consultant, working mostly with startups . “People say, he's not following the rules or he's not following the roadmap that we've already agreed on for the year."

Yet, when executives have been willing to give him a chance, he's been able to create new products and boost revenues in ways that no one had though of before. For instance, as a manager, he was able to increase sales at NTT, a Japanese telecom, by 25 percent, he says, by turning whois.net into one of top domain name search sites in the country.

As Gudema knows well, many companies struggle to innovate. There can be layers upon layers of bureaucracy, executives who are set in their ways, and employees who are happy to just get to work and then go home.

However, there are also many entrepreneurial managers who know that if their company doesn't innovate, they risk being disrupted by nimbler Silicon Valley-like operations. Many companies are now keen to the idea of an internal startup or innovation hub, but it could still take some work to convince higher-ups to go for it.

So what can you do to support your case?

Tell a Good Story

In 2012, Craig Haney was hired by Toronto's Canadian Tire, a $12-billion a year retail chain, to drive innovation. He created a startup within the company – it was located about 60 miles away from the company's head office and was staffed with people from outside the company.

While he was hired by one of the operation's executives, he still had to make sure everyone was on board with what he was doing. He did it by outlining why people should care about innovation.

“You have to tell a really good story about why innovation matters," says Haney, who is now director of corporate innovation at Kitchener-based Communitech, an innovation center that helps organizations create corporate startups. “Senior executives understand that their organizations are not set up be nimble and innovative. They want to know what the future will look like."

It can also help to come to the table will at least a few well-thought out ideas, says Gudema, so you can be ready if you're asked what you have in mind.

“I always had a plan ready in case they wanted to discuss something with me," he says. “At one time, at NTT I had 15 business plans made."

Innovation is Cheaper and Faster at Startups

While company executives might, in theory, think that a startup hub is a good idea, most can't get past return on investment.

It's a difficult conversation to have, because most projects won't generate any revenue for about 18 months, says Haney. It takes time to build a new culture and to put ideas into practice.

“The first 18 months are all about learning," he says. “It's not about returns. The real value of the lab will come."

However, when talking to the bosses about ROI, make sure to point out that innovations are cheaper to produce and occur faster than what you see with a traditional startup.

Jenni Schwanenberg, innovations manager at Munich's Mantro, a technology company that works with corporate innovation teams to develop products, says that some businesses can create prototypes for as little as $200,000.

She worked with a startup team from ENBW, a large German utility company, to create Oil Fox, a device that automatically checks the levels of fuel oil tanks, which required a $2 million investment during the prototype phase. That's not much, though, compared to the millions upon millions of seed funding that most traditional startups require to get off the ground.

Why the lower investment? Because internal teams can focus solely on product development, she says. They don't have to build up supply chains, sales teams, HR capabilities, and the myriad other things that come with running a business. The parent company has all of that in place already.

While that keeps costs low, it also allows startup teams to create products in a much shorter time frame than usual. At Canadian Tire, Haney would make prototypes within two weeks. He took a virtual reality program for the Oculus Rift – it's being used to help sell the company's tents and gazebos – from concept to market in about a month.

He can do that because he doesn't have to spend the first several months trying to raise money like a startup does.

“This is a powerful statement for a large organization that's used to looking at projects for two or three years and needs $20 million to sign a statement of work," he says. “We can create things in two weeks."

Get Executives into a Room

One strategy that Gudema has used to convince executives to try out new ideas is to put on seminars for staff on an interesting tech topic.

At NTT, he held sessions on search engine marketing, back when SEO was still new, and a presentation on how to build a WordPress website.

They're small things, he says, and may not relate to the innovation that you have in mind, but it helps get executives and other staff to think differently.

“Half of the vice-presidents showed up to learn how to build a site," he says. “They wanted to hear about something new."

Mitigate Risk

If there's one thing corporate leaders don't like it's risk, which is why you should make it clear that you're not trying to launch the next Uber.

The idea of an internal startup is to develop technology or innovations that relate to the company's objectives, says Haney. Most executives won't want you to create something that cannibalizes the current business.

Executives may feel more comfortable if you suggest setting up an innovation council, which is a group of senior managers and possibly executives – people who have a foot in strategy and in operations – that can be the conduit between the startup and the board or the C-suite, he says.

The council members should meet on a monthly basis and they're responsible for three things. The first is supporting the innovation team – council members help manage budgets and allow the team to do what it needs to do away from prying eyes. Council members also oversee the process, to make sure it's transparent and repeatable. Finally, it's the council that brings the company's challenges to the innovation hub to help solve.

“It can't just be a cowboy group of people working in the startup," says Haney.

It's likely the corporate world will see these internal hubs pop-up over the next several years, says Schwanenberg. For companies to survive they need to be more innovative and the best way to do that is to create a startup-like team free from corporate red tape.

“Big enterprises need to become leaders and become agile," she says. “Internal startups can help them learn new processes and get their foot into other markets."